Slightly lower prices, falling interest rates and slowly rising incomes are all helping to improve affordability for first home buyers – but not by much

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By Greg Ninness

Housing finished the winter at its most affordable level for first home buyers in the last six months, according to interest.co.nz’s latest Home Loan Affordability Reports.

The improvement in affordability is due to a combination of slightly softer lower quartile house prices overall, falling interest rates and slowly rising wages.

According to the Real Estate Institute of NZ, the lower quartile selling price of all homes sold throughout the country peaked at $381,000 in March and dropped to $375,000 in August.

Over the same period the average of the two year fixed mortgage rates offered by the major banks declined from 4.67% to 4.61%.

Separate Home Loan Affordability Reports are available for each of the following regions and cities (click to view).

Northland Region

Whangarei District

Auckland Region

Rodney District

North Shore District

Waitakere District

Central Auckland District

Manukau District

Papakura District

Franklin District

Waikato Region

Hamilton District

Bay of Plenty Region

Tauranga District

Rotorua District

Hawke’s Bay Region

Napier District

Hastings District

Gisborne District

Taranaki Region

New Plymouth District

Manawatu/Whanganui Region

Palmerston North District

Whanganui District

Wellington Region

Masterton District

Kapiti District

Porirua District

Hutt Valley District

Wellington City

Nelson/Marlborough Region

Nelson City

Canterbury Region

Christchurch District

Timaru District

Otago Region

Dunedin District

Queenstown-Lakes District

Southland Region

Invercargill District

All New Zealand

That meant the mortgage payments on a home purchased at the lower quartile price would have declined by just over $10 a week over the same period, from $366.70 a week in March to $356.32 in August.

Also during that period wages have been slowly rising, and the Home Loan Affordability Reports estimate that the combined after tax pay for a typical first home buying couple (both aged 25-29 and working full time for the median rate of pay for their age group) would have increased from $1585.82 per week in March to $1600.18 a week in August.

That meant the amount of their income that typical first home buyers would need to set aside each week to meet the mortgage payments on a lower quartile-priced home would have decreased from 23.12% in March to 22.27% in August, making home ownership the most affordable it has been for first home buyers since February.

Housing is considered affordable when it takes up no more than 40% of take home pay.

By that measure, lower quartile-priced housing should still be affordable for typical first home buyers in most parts of the country.

Auckland is the only region of the country where the mortgage payments on a home purchased at the region’s lower quartile price would exceed 40% of typical first home buyers’ incomes (43.23% in August), although Queenstown is the most unaffordable town in the country for first home buyers, with the mortgage payments on a lower quartile-priced home there taking up just under half a typical first home buying couple’s pay.

However even in Auckland there are some bright spots, with Papakura and Franklin both classed as affordable for first home buyers, with lower quartile prices falling in both districts over the last few months.

In Franklin the lower quartile price was $537,000 in August, the lowest it has been since July last year, which means the mortgage payments on a lower quartile-priced home there would eat up 33.62% of a typical first home buying couple’s take home pay, well within the affordability limit.

In neighbouring Papakura, the lower quartile price was $543,000 in August, with the mortgage payments on a home at that price taking up 34.06% of typical first home buying couples’ take home pay, also within affordable limits.

However in other parts of Auckland, couples on average pay are likely to struggle to be able to afford their own home.

After Auckland the most expensive place for first home buyers is Nelson/Marlborough where the mortgage payments on a lower quartile-priced home would take up 31.09% of a typical first home buying couples’ take home pay, followed by Bay of Plenty 29.26%, Wellington Region 24.98%, Waikato, 24.25%, Hawke’s Bay 21.07% and Canterbury 20.13%. in all other regions it was less than 20%, which should put home ownership well within the reach of first home buyers.

Separate Home Affordable Reports for each district are available by clicking on the appropriate link in the box at left.

The interactive chart below tracks changes in Home Loan Affordability for first home buyers in all regions since January 2004.